Friday, July 11, 2008

Airline CEO Takes Full Responsibility for Poor Judgment...Kidding!

Help Fight America's Oil Crisis

That’s the headline of an email we recently received from the folks at Northwest Airlines.

In fact, it was signed by the CEO of Northwest, Douglas Steenland, so we knew it must be important.

Steenland has been CEO of Northwest since October 2004. Keep that date in mind as you read what he is telling his customers how to “fight” the oil crisis:

Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now. Visit

That’s right.

He's not writing about conservation, about how to make our travel plans more efficient, about how we can help Northwest reduce oil demand.

He's writing about so-called speculators.

Steenland elaborates with remarkably little in the way of actual advice for reducing demand and increasing supply, and much in the way of mindless angst directed at so-called “market speculation”:

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers.

Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Remember what I said about Mr. Steenland being named CEO of Northwest in October, 2004? Northwest Airlines did not start hedging its jet fuel needs until 2008.

That’s right.

Unlike, say, Southwest, which hedged most of its jet fuel needs when prices were low, Northwest didn’t bother until oil had spiked to $100 a barrel.

Now, to be fair, Northwest couldn’t hedge without a bankruptcy court approval back when it was in bankruptcy. But that was more than 50% ago, in oil price terms.

Of course, when a big corporate CEO like Mr. Steenland makes a gross error of judgment like not hedging his single biggest cost of doing business, he naturally takes full responsibility and ask shareholders and customers for forgiveness.

We’re kidding!

He blames speculators instead:

The nation needs to pull together to reform the oil markets and solve this growing problem. We need your help. Get more information and contact Congress by visiting

Northwest emerged from Chapter 11 in May 2007. Northwest equity holders got nothing. Mr. Steenland got a package worth $26.6 million at the time.

Too bad Northwest didn’t use some of that $26.6 million to hedge itself.

I guess the only thing to do now that it's too late to do anything useful is...blame speculators.

Yep, that's the ticket...for an airline that doesn't know much about hedging, anyway.

Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.


Mark said...

Coincidentally, I just had the "pleasure" of flying Northwest YESTERDAY...

It was $1200 round-trip from New York to Minneapolis, and for that, I had the privilege of sitting in a 20+ year-old plane with no entertainment system whatsoever and dirty, kindergarten-width seats. You know how flying (commercial, at least, which-- sadly-- is the only kind I know) is such a hassle these days, but once you actually settle into a seat on, say, Jet Blue and stretch out a little and flip on the TV or satellite radio, it's actually kind of relaxing? Well, the only "in-flight relaxing" on Northwest takes place by the cabin crew (which is undoubtedly simply paying back management for the years of abuse heaped upon them).

I will say this, though: their in-flight magazine was surprisingly entertaining and well-written. May I humbly suggest that the Board offer its editor the job of running the entire airline?

David said...

A friend of mine forwarded the same letter, except it was the Delta version. I seem to recall that Delta at one time had a hedge, but a few years ago, in an effort to clean up their balance sheet, they sold it off and now they have no hedge left. It's kind of like staying aloft by throwing paying passengers overboard.

Mikhail said...

I got the same letter from United. The signing airlines are:
Alaska Airlines
American Airlines
Continental Airlines
Hawaiian Airlines
Midwest Airlines
Southwest (yes, them too!)
US Airways

So it seems that Douglas Steenland is not the only one ready to blame anything and anyone for their trouble. Can someone explain what Southwest is doing on that list?

Mark said...

"I guess the only thing to do now that it's too late to do anything useful is...blame speculators."

It's actually quite historical...

This could be the first time a CEO accused traders of sinking his stock by taking LONG positions!

hump said...

But, I am sure, all the lads running the airlines would claim that by hedging the costs of their fuel they would be involved in "speculating" on the price of oil would they not?

The letter (yup, I got one too) is a serious joke. In contrast to this, the FT reported, on July 2, that several Asian airlines, Japan Airlines, All Nippon, and Singapore Airlines, have all been aggressively hedging their fuel costs (the article can be found here,dwp_uuid=d3532e34-27ed-11dd-8f1e-000077b07658.html)

And they do happen to have much better planes and better service too.

whydibuy said...

This letter writing protests about those mysterious evil doing speculators got me thinking about Jimmy Rogers views on so called speculators.

He noted in his book that speculators are often used as scapegoats and blamed for financial problems when really its nothing more than true market forces at work. For example, the currency runs in Thailand were blamed on speculators by the gov when in reality, the collapse of the local currency was due to the collapse of confidence in it by all the domestic holders of it. Ditto for the U.K. when the pound fell and George Soros made 1 bil on it. He was vilified but really it was the locals who were fleeing the currency. If the free market liked that currency, the speculators would be crushed. Its always the free market that sets the backdrop in the commodity move. Speculators just try to coin a profit from it. For the most part, they play at the edges of the markets and if the free market, in oil say, produced an abundance of it, the speculators would be overwhelmed by selling.

Bottom line. You can be quite assured that when the gov and others start railing about speculators in a market, you can be pretty much, totally sure that it isn’t a grand conspiracy by evildoing speculators.

Kid Dynamite said...

i wrote a similar analysis of the same letter:

so sick... now we need to go after the short sellers along with the speculators and everything will be fine.. (SARCASM!)

Big Picture Guy said...

The 12 CEO signatories are using Capitol Advantage to do some ASTROTURFING (astroturfing is a manufactured grassroots campaign). They are using Capwiz·XC, an award-winning online advocacy system to deliver messages to Capitol Hill.

The people at Capitol Advantage are hosting the site.